2. What is Money? What is Currency?
Both ‘Money’ and ‘Currency’ involve the
exchange of goods and services.
Money is the most liquid asset because it is
universally recognized and accepted as the
common Currency.
Money
The economic definition emphasizes that money
is the medium of exchange, or what we use to
buy things with i.e., what you earn by working
and what you spend in order to buy things.
Currency
Currency is the means of purchasing through
trade and generally refers to printed or minted
money. Currency is the system or type of money
that a particular country uses.
Local currency: The local currency is Australian
dollars.
3. Money is a ‘Unit of Account’
‘Unit of Account’ means:
That money can be used to set the value of items.
4. Money is a ‘Store of Value’
‘Store of Value’ means:
That ‘money’ is able to be saved, put away and
retrieved. But with one stipulation, that after it has
been retrieved it must still be able to be used.
5. Money is a ‘Medium of Exchange’
‘Medium of Exchange’ means:
Money must be able to be swapped and retain its
value. So that there is no need for any actual goods
to be exchanged.
7. Barter: The Bartering System
What is Bartering?
Trading goods and services without the use of
money is called bartering. Early civilizations relied
on this kind of exchange. If you were a successful
hunter you would have a lot (a surplus) of animal
meat and animal products. If you meet someone
who has a lot of vegetables because they are a good
farmer then you have the makings of a delicious
meal. So you swap/trade/exchange some of your
goods for theirs.
Even cultures in modern society rely on it. You might
swap ‘football cards’; a play-station game for
another.
It is a system of trading items that are ‘needed’ or
‘wanted’.
8. Barter: What problems could arise?
What problems could arise?
Analysis of this Economic System reveals three
aspects that are considered as problems?
Can you guess what they are?
9. Barter: Problem 1: Standard of Value
‘Standard of Value’?
Who decides what something is worth?
What happens when you want something small, like
some tomatoes and the tomato vendor asks you for
a table in return?
You'd probably argue that a table is worth a lot
more than a few tomatoes.
Is a cow a fair exchange for a lamb?
Is a 14ct gold necklace a fair exchange for a dozen
home-baked pies?
Under a barter system there was no measure of
value. Because of this, you might be pressured into
taking unfair deals and therefore suffering in the
process.
10. Barter: Problem 2:
Double Coincidence of Wants
Double Coincidence of Wants?
Exchange can take place between two persons only
if each possesses the goods which the other wants.
Double Coincidence of Wants is the requirements of
a barter exchange that each trader has what the
other wants and wants what the other has. Because
everyone doesn't necessarily want everything, the
lack of Double Coincidence of Wants is a major
obstacle in barter exchanges, especially for complex,
modern economies. While Double Coincidence of
Wants is also essential for exchanges involving
money, it's such an inherent trait of money we don't
think twice about it. By its very nature as a generally
accepted medium of exchange, everyone WANTS
money.
11. Barter: Problem 3:
Indivisibility of Commodities
Indivisibility of Commodities?
It was difficult to divide a commodity without loss in
its value.
e.g., a man who wants to purchase 10 metres of
cloth equal to the value of half his calf would find it
difficult to ‘divide’ his calf unless he was able to find
other commodities for the other half of his calf and
therefore be stuck with half a calf. (“,)
The likelihood would be that he would not be able
to purchase the 10 metres
12. Commodity Money & Fiat Money
Commodity Money is:
Commodity Money is a form of money which has an
intrinsic value, meaning it is worth something in its
own right rather than simply being a token of
financial value such as a banknote.
The best known form of commodity money is gold
or silver coins, though any commodity can fulfill this
role.
Fiat Money is:
Most types of cash used today do not have any real
intrinsic value. For example, a banknote is virtually
worthless in itself and only has value because
society accepts it as a measure of currency and a
unit of exchange.
This type of currency is known as Fiat Money.
13. Coinage
610 BC
Lydians of Asia Minor invent coinage; shortly afterward it spreads to Greek cities in Asia
Minor, then Greek islands, then Greek mainland, then rest of world
600 BC
Archaic Age China issues its first coins, cast bronze pieces in shape of farm tools
800-500 BC 560 BC
Lydians invent bimetallic coinage, issuing coins of pure gold and pure silver
550 BC
First coinage minted in mainland Greece, in Athens and Corinth
Obsidian, a type of volcanic
glass or hardened lava, is one of
many materials that were used
as money before coins and
afterward.
Lion paw electrum 48th stater Lydian electrum trite (4.71g, 13x10x4 mm).
(0.27g). This coin features on This coin type, made of a gold and silver alloy,
the obverse a lion's paw. There's was in all likelihood the world's first, minted by
disagreement over whether King Alyattes in Sardis, Lydia, Asia Minor
these fractions are Lydian. (present-day Turkey), c. 610-600 BC.
14. Paper Currency
First Paper Money
The first paper money was issued in China during
the Song dynasty in the 10th century.
The name of the note was jiaozi. For the first time it
was issued liberally among the people of China.
Thus it was able to take the place of coins that till
then were widely used in circulation.
Paper money appeared in China due to several
reasons. Firstly, after a great development of the
economy and a boom in trade registered in the
Northern Song Dynasty, the iron coin sometimes
showed its disadvantages, mainly due to the fact
that it was small in value and heavy. In
addition, during this period, printing showed great
results, it was able to produce paper money, which
was quite convenient for traders.
15. Fort Knox
The US Bullion Depository, Kentucky
Other items:
Fort Knox In the past, the Depository has stored the
Amount of present gold holdings: Declaration of Independence, the U.S.
147.3 million ounces at a book value of $42.22 Constitution, the Articles of Confederation,
per ounce. Lincoln's Gettysburg address, three volumes of
the Gutenberg Bible, and Lincoln's second
Opening: inaugural address.
The Depository opened in 1937; the first gold was
moved to the depository in January that year. In addition to gold bullion, the Mint has stored
valuable items for other government agencies.
Highest gold holdings this century:
649.6 million ounces (December 31, 1941). The Magna Carta was once stored there. The
crown, sword, scepter, orb, and cape of St.
Construction of the depository: Stephen, King of Hungary also were stored at the
Building materials used included 16,000 cubic Depository, before being returned to the
feet of granite, 4,200 cubic yards of concrete, 750 government of Hungary in 1978.
tons of reinforcing steel, and 670 tons of
structural steel. The cost of construction was The Depository is a classified facility.
$560,000 and the building was completed in No visitors are permitted, and no exceptions are
December 1936. made.
16. Credit Money
Credit Money
Credit money refers to money that constitutes
future claims of a valuable item against an entity.
The holder of credit money can use it to purchase
goods and services; when the holder wants to, he or
she can redeem it to get the item by which it is
backed.
Credit money is made of a material that has low
intrinsic value compared to the value it represents
when exchanged.
Some types of credit money include IOUs, bonds
and money market accounts. Some people also
consider paper money and coins to be credit money
because they have no intrinsic value and can be
exchanged for valuable commodity.
17. Money is a means of keeping score
Money Scorecard
This all means that today, money is just a number; just a score at the end of a sports
game.
The Forbe’s World’s Richest List is just similar to The Best Sportman’s Award given out by
other magazines.